All about that base: Employee compensation strategies for small business sales teams
Wednesday, 3 July 2019
Whether your small business is rapidly growing or just starting up, you may be thinking about hiring a sales force.
But should you offer a base pay, commission, or both? The best practice is a combination of the two, says Tammi DeVille, CEO of Hire With Ease, a Denver-based recruitment firm specializing in small business sales teams.
The key is finding the right balance that will motivate your staff. “The problem with sales is if you go too high on a base, and they're too comfortable depending on their earning history, there's not enough incentive for them to really hustle," she says.
“We want our sales people to be hungry but not starving," says Scott Plum, founder and president of the Minnesota Sales Institute, which trains salespeople and helps them adapt to changing marketplaces.
DeVille says it helps if the owner already has a good sense of the market, strategy, and “close ratio"—how much contact they generally need to make with the customer before a sale goes through. “They have to have done enough sales activity on their own," she says. “If you haven't actually done the numbers, you don't actually know. That's the challenge."
If a salesperson is new and needs to develop relationships, it makes sense to start out with a “ramp up" period of a higher base and lower commission rate until business starts to take off. “The other way to do it—which is a little messier—is a draw against commission. They can have a higher earning up front, but that's basically crediting them for what they're going to earn in the future. It gets deducted from those sales. It's way messier. I don't really recommend that," DeVille says.
Both DeVille and Plum agree that commission-only situations rarely work, and they generally advise clients against them. There's a higher turnover, and a more urgent motivation to make sales at any cost. Plum says that without a commission-only situation, salespeople have an obligation to build relationships for a long-term return.
Motivate sales teams through rewards
It may seem like small businesses can't possibly compete with the salaries and perks of larger companies, but DeVille says that many sales professionals like a new challenge in a wide-open market. “If you have a good target market, chances are your biggest problem is you can't even reach all your prospects fast enough. So to a salesperson, this is like a giant ocean of fish just waiting," DeVille says. Bigger companies, she says, assign territories and the saturation point may have passed.
A smaller company might have more flexibility when it comes to rewarding salespeople, says Plum. Compensation schedules can be a little more creative based on each salesperson, but a larger company will need to stick to a more consistent compensation schedule.
Frequent bonuses and perks go a long way toward encouraging performance, Plum says, and you always want to have the shortest timeline for an incentive. Monthly and quarterly goals—plus milestone rewards—tend to keep salespeople on their toes, and having only an annual goal might seem too far away to affect real motivation. “The more opportunities for them to have an incentive or a bonus when they reach a certain goal, then the more money that they're going to make, and the more they're going to think long-term versus short-term," he says.
You should also make sure that you're compensating salespeople on what they can control, and not dinging them for things outside their job description, such as fulfillment or not getting paid from the client, Plum says. “When you start putting salespeople in that position of collecting from their prospects, it really creates an awkward conversation."
Why salespeople leave their jobs
DeVille says that as companies grow, two things tend to happen in regard to sales: They cap their commission, and they change their compensation plans. “Be very careful when you create the plan. If you're giving them 20 percent commission, or 15, or whatever it is, be conservative when you choose that, so that if anything, you could raise the commission over time," she says.
Getting bogged down in non-sales duties can also dampen motivation. “Good salespeople love to sell," DeVille says. “Take everything that isn't selling away from them." Duties like filling out paperwork and setting appointments should be delegated elsewhere. Removing the pieces of the process that aren't pure selling will not only attract more salespeople, but also keep them happy.
"True sales people just want to be out closing deals," DeVille confirms.
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